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Self-Sufficiency Versus Free Trade: TheCase of Rice in IranSeyed Hbibollah Mosavi a & Abdoulkarim Esmaeili aa Shiraz University, Shiraz, IranPublished online: 10 Feb 2012.

To cite this article: Seyed Hbibollah Mosavi & Abdoulkarim Esmaeili (2012) Self-Sufficiency VersusFree Trade: The Case of Rice in Iran, Journal of International Food & Agribusiness Marketing, 24:1,76-90, DOI: 10.1080/08974438.2012.645744

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Self-Sufficiency Versus Free Trade:The Case of Rice in Iran

SEYED HBIBOLLAH MOSAVI and ABDOULKARIM ESMAEILIShiraz University, Shiraz, Iran

The dilemma of free trade and self-sufficiency for the case of rice inIran justifies continuous governmental intervention in this market.Among all policy instruments, import tariffs have been extensivelyused to achieve self-sufficiency; however, the results of this policyare quite controversial and remain as a main question forresearchers and policymakers. Hence, this article examines theeconomic impacts of increasing import tariff policy applying amultimarket spatial price equilibrium model. The results suggestthat pursuing the goal of self- sufficiency by restricting rice importwould be detrimental. Social welfare as well as real and per capitaincome are adversely affected by increasing import tariffs both innationwide and regional scale except for 1 region, which ischaracterized as the largest net exporter region in Iran. Also resultsshow that adopting free trade policies and improving rice yieldmay be the well-advised strategy in the case of rice in Iran.

KEYWORDS free trade, import tariff, Iran, rice market,self-sufficiency, spatial price equilibrium model

INTRODUCTION

Despite recent significant increases in rice production, Iran still is one of thebiggest rice importers in the world by importing over 1.3 million metrictons per annum (Food and Agriculture Organization of the United NationsStatistical Database [FAOSTAT], 2010). From the consumption perspective,rice is a major food staple in Iran as is in many other Asian countries. Percapita consumption of rice rose from 25 kg in 1961 to around 53 kg in2008, indicating an average growth of 1% per annum (FAOSTAT, 2010).

Address correspondence to Abdoulkarim Esmaeili, Department of Agricultural Econom-ics, Shiraz University, Shiraz, Iran. E-mail: esmaeili@shirazu.ac.ir

Journal of International Food & Agribusiness Marketing, 24:76–90, 2012

Copyright # Taylor & Francis Group, LLC

ISSN: 0897-4438 print=1528-6983 online

DOI: 10.1080/08974438.2012.645744

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Domestic rice industries as whole cannot compete with more establishedforeign ones as results of high water requirement and lack of proper tech-nology and infrastructures. However, coping with probable internationaltrade sanctions inclined Iranian government to adopt self-sufficiency policiesfor the basic agricultural commodities (i.e., wheat, rice, sugar, and edible oil).Following this fact, rice production has been supported by various kinds ofpolicies such as guaranteed price; procurement programs; input subsidy;credit policies; and by controlling imports via tariffs and multiple exchangerate, especially in the years after the revolution of 1978 (Parmeh, 2010).

Among all policy instruments, import tariffs have been extensively usedin recent years. The review of the tariff system status quo indicates that advalorem tariffs are dominant in Iran. Figure 1. shows the change in the riceimport tariff from 2003 to 2010. As shown, import tariff has had large fluctua-tions in this period. Reduction of import tariff from 2006 to 2008 was affectedby political pressures of government critics who pursued free trade policy inthis market (downward sloped part of the figure). However, the importantquestion was always whether or not performing self-sufficiency policies isbeneficial to the country.

In addition, rice market characteristics such as prices, quantity pro-duced, per capita consumption, distance to world market, and the share ofdomestic production in the consumption basket are different among pro-vinces of Iran. Using cluster analysis, Mosavi and Esmaeili (2011a) identifiedthat there are six different regional (spatial) rice markets in Iran as shown inthe country map (Figure 2). Also they argued that the effects of policyoptions may be quite different in these regions.

As can be seen, according to Mosavi and Esmaeili (2011a) Region 1includes three Northern provinces of Iran (Gilan, Mazandaran, and Golestan),which have proper characteristics for cultivating rice and account for more than85% of total domestic rice production. Cultivating local varieties is prevalent in

FIGURE 1 Rice import tariff from 2003 until 2010. Source: Iranian Customs Department.(Color figure available online.)

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Region 4 so that this region stands for the second ranked rice production site byproducing 12% of total domestic rice. Although rice is an important food in theconsumption basket in all regions, other regions have little potential for growingrice. Another difference among the regions that determines patterns of interre-gional trade is the distance between the regions and the world market. Becausethe vast majority of the imported rice (e.g., 95% in 2008) enters the country fromBandar Abbas port (Figure 2), the distance between each region and BandarAbbas proxies the respected distance to the world market. As shown inFigure 2, Regions 5 and 6 are far from Region 1. However, these two regionsare closer to the world market and therefore the shares of imported rice inRegions 5 and 6 are indubitably greater than domestic ones.

These regional differences emphasize the intricacy of the problem.Nevertheless, It should be noted that although the effects of rice policies inthe country have strongly been measured by researchers (e.g., Bakhshoodeh,2010; Bakhshoodeh & Piroozirad, 2003; Bakhshoodeh & Soltani, 2002;Bakhshoodeh & Thomson, 2006), to best of our knowledge, there is no com-prehensive and quantitative study toward evaluating the regional and spatialimpacts of rice policies in the country. Hence, the goal of this study is quan-titative analysis of import tariffs in the regional rice markets in Iran. Perform-ing such works may collect useful information that helps policymakers makebetter decisions about rice trade and self-sufficiency.

The first study on regional and Spatial Price Equilibrium Models (SPEMs)was attributed to Enke (1951), who posed the problem of finding the competi-tive equilibrium levels of interregional flows and prices. Samuelson (1952)demonstrated that the problem posed by Enke could be formulated in an

FIGURE 2 Spatial rice markets in Iran. (Color figure available online.)

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optimization mathematical programming framework (Hazell & Norton, 1986).However, until 1964, the computational aspects of spatial equilibrium modelsremained as the major impediment for empirical applications. Assuming per-fect competition and linear and well-behaved regional demand and supplyfunctions, Takayama and Judge (1964) were first to solve the SPEM problemusing the Quadratic Programming (QP) framework (Alasia, 2002).

After that SPEMs evolved in a variety of directions to handle a great var-iety of situations in terms of market structures and characteristics of the com-modities; for example, Nelson and McCarl (1984) showed the ways toincorporate imperfect competition in these models. They showed how thestandard Cournot and Stockelberg equilibrium may be modeled. They alsodescribed the new theoretical models of consistent conjectural variationsand how these models can be translated into quadratic SPEMs. Also, somealternative formulations of SPEMs with imperfect competition were specifiedby Harker (1986). He started from classical SPEM and generalized to aCournot-Nash equilibrium model. In the 1990s after the novel work ofRutherford (1995), complementarity formulation of SPEM became prevalent.Furthermore in the 2000s, Cox and Chavas (2001) developed the classicalSPEM for allocating primary and processed commodities. Devadoss, Aguiar,Shook, and Araji (2005) and Devadoss, Sridharan, and Wahl (2009) extendedthe primal-dual formulation of SPEM with the linear supply-and-demandequations to incorporate the ad valorem tariffs.

The famous study that evaluated regional and nationwide impacts ofagricultural policies was conducted by Minot and Goletti (1998). Theydeveloped the Vietnam Agricultural Spatial Equilibrium Model (VASEM) toanalyze export liberalization policy in eight different regions of Vietnam.In the same year, VASEM was subsequently modified and adapted to Mada-gascar (Goletti & Rich, 1998). After that, alternative spatial and regional mod-els have been widely applied to investigate agricultural policies. Asexamples, we may refer to Mills (1998) for maze market in Kenya; Coxand Chavas (2001) for U.S. dairy market; Alasia (2002) for agricultural mar-kets in Mozambique; Agrifood Consulting International (Anonymous, 2002)for Vietnam livestock sector (VILASEM);1 Acosta and Kagatsume (2003) forAssociation of Southeast Nations (ASEAN) countries rice sector in the WorldTrade Organization (WTO); Chen, McCarl, Chang, and Hsu (2003) for theworld rice market; Abbassi, Bonroy, and Gervais (2008) for the Canadiandairy market; Nolte et al. (2010) for the European Union sugar trade; andChen, Chang, and McCarl (2011) for the world rice market.

In the context of respected studies in Iran, Mosavi and Esmaeili (2011a,2011b), based on the VASEM, tried to develop single-commodity SPEM tocompute implicit import tariff as a measure of nontariff barriers and to evalu-ate poverty changes of different rice policies in the six different regions ofIran. However, these studies neither consider income effects in the marketadjustment mechanism nor take into account price control policies that are

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prevalently performed as an alternative policy to achieve self-sufficiency. So,this study contributes to the literature by extending the study of Mosavi andEsmaeili (2011a, 2011b) twofold. First, two types of agricultural price supportpolicies (floor and ceiling price policies) are included in the model. Second,income is incorporated endogenously in the model that is not reported forany kind of Iranian agricultural markets until now.

The rest of this article is structured as follows: In the next section, math-ematical statement of the model is represented. After that, the results of theself-sufficiency scenario are simulated and reported for different levels ofimport tariff. Also, to provide more details, the results of increasing riceimport tariff from 4% in 2008 (base year) to 45% in 2010 are presented.Finally, we conclude with a brief summary of main results.

THE MODEL

Several sources of data such as National Household Survey collected by theIranian Statistics Center and databases available in the Central Bank of Iran,the Iranian Ministry of Agriculture, Iranian Customs Department, and the Ira-nian Ministry of Road and Transport were used to develop the Iranian RiceSpatial Price Equilibrium Model (IRSPEM). This model simulates four staplefood markets in different regions of Iran; however, the main focus of thisstudy is on the results of the model for high-yield, long-grain localdomestic rice.

The Herfindahl-Hirshman index (Magee & Magee, 2008) was calculatedto be equal to 246 suggesting that Iran should be considered a small econ-omy in the rice trade. So the world price of rice was considered given inthe IRSPEM. In this model R¼f1, 2, 3,. . ., Rg and C¼f1, 2, 3,. . ., Cg referto sets of regions and commodities, respectively. Therefore, 8 ðc; c0Þ 2 Cand 8 ðr; r 0Þ 2 R we have

Find Pdcr ; Ps

cr ; Scr ; BScr ; Pr ; Dcr ; Yr ; TQcrr 0 ;Mcr ; Xcr ; EScr ; EDcr

such that:

Scr ¼ aScr þ S0crXCc0

ccc0rLnðPsc0rÞ

� �ð1Þ

BScr ¼ aDcr þXCc0

bcc0r LnðPdc0rÞ

� �þ dcr Ln

YrPOPr

Pr

� �� �ð2Þ

Pr ¼ EXPXc

BScr LnðPdc0rÞ

" #ð3Þ

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Dcr ¼ BScrYrPOPr

Pdcr

� �ð4Þ

XRr 0¼1

TQcr 0r þMcr þ EDcr � Dcr þ ENDcr ? Pdcr � 0 ð5Þ

ScrCONVcr½ � þ BEGcr �XRr 0¼1

TQcrr 0 þ Xcr þ EScr ? Pscr � 0 ð6Þ

Yr ¼ YNAGr þ

XCc¼1

Pscr Scr½ � ð1� CPROcrÞ

" #,POPr : ð7Þ

Pscr CONVcr=

� �þ TCcr þMKTcrr 0 þ ITTcrr 0 � Pd

cr 0 ? TQcrr 0 � 0 ð8Þ

ðPWc þMARcÞð1þ tmcÞ½ � EXR þ ITMcr þ TCWcr � Pdcr ?Mcr � 0 ð9Þ

Pscr CONVcr=

� �þ ITXcrþTCWcr � PWc 1� txcð ÞEXR ? Xcr �0 ð10Þ

Pscr � �PP

F ?EScr � 0 ð11Þ

�PPC � Pd

cr ?EDcr � 0 ð12Þ

where Scr is supply function; aScr and aD

cr are supply and demand intercept,respectively; S0cr is initial supply quantity; ccc0r are supply price elasticities,which are estimated using times series data; bcc0r and dcr are price andincome coefficients in the Almost Ideal Demand System (AIDS) model,respectively, that are calculated using Marshalian demand function coeffi-cients and the inverse functions of Green and Alston (1990); Dcr is demandfunction; BScr is budget share; POPr is population; Pd

cr is consumer’s price;Pscr is producer’s price; Pr is Stone (1953) price index; TCWcr is transport cost

from each region to the boundary; PWc is world prices; EXR is exchange rate;tmc is import tariff; TCcr is transport cost of commodities among regions;MARc is marketing margin of commodities among regions; ITTcrr 0 is trans-action cost on domestic trade; MKTcrr 0 is marketing cost among regions;TQcrr 0 is the quantity of interregional shipments from r to r 0; CONVcr isconversion rate of commodities from sellers to buyers; ITMcr is implicitimport tax; ITXcr is implicit export tax; Xcr is total export quantity; Mcr is totalimport quantity; �PP

Fis floor price; �PP

Cis ceiling price; EScr is excess supply;

EDcr is excess demand; BEGcr is beginning stock; ENDcr is ending stock;CPROcr is production costs as a proportion of production income; Y

NAGr is

income received from nonagricultural works (considered fix); and Yr is totalper capita income.

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In Equation (1), the quantity of each commodity supplied is specified asa semilog function and also in Equations (2) to (4) demand functions arespecified based on the Linear Approximation of the Almost Ideal DemandSystem. Also, Equation (3) is Stone’s (1953) price index used to simulateConsumer Price Index (CPI). The two inequalities (5 and 6) maintain thecommodity balance in each region, connecting total demand and inflowand total supply and outflows, respectively. Per capita income in each regionis specified by Equation (7). This is equal to the sum of per capita nonagri-cultural income and per capita farm income. Inequality (8) refers to spatialarbitrage in the model and inequalities (9) and (10) refer to export andimport parity prices. Inequalities (11) and (12) let us incorporate price con-trol in the model. Also, complementary slackness conditions provide forprices, international and interregional trade quantities, and excess supplyand demand to become zero if the corresponding inequalities do not holdwith strict equality.

As can be seen, the model is formulated as a Mixed ComplementarityProblem (MCP) approach (Rutherford, 1995). MCP by assuming competitivemarket structure with no market power and no externalities solves thefirst-order conditions of an underlying optimization problem. The MCPformulation of IRSPEM was used in this study for two main reasons. First,as Thore (1982) argued, treating income as an endogenous variable inTakayama and Judge’s (1971) approach is very difficult. In the case of Iran,major proportions of producers are consumers as well, especially in surplusregions. Also, because rice tariff policies influence producer prices and pro-ducer prices in turn affect the income generated in the agricultural sector andsubsequently consumption of all commodities including rice, it is preferableto consider income as an endogenous variable in the model. Therefore,Takayama and Judge’s (1971) framework with exogenous income was inad-equate to describe our system. Second, the Takayama and Judge (1971)approach is subject to integrability condition (Alasia, 2002). The MCP formu-lation also solves nonintegrable problems, which are caused by ad valoremtariffs (Rutherford, 1995) that are extensively used in the Iranian rice market.Finally, IRSPEM2 was executed using GAMS programming language and wassolved by the PATH solver (Ferris & Munson, 1998). IRSPEM was calibratedfor the base year 2008 because it is the most recent year in which compre-hensive and reliable data are available.

Regarding the results of the model, it is possible to calculate the welfareimpacts of import tariffs in the countrywide and in the regional markets. Toperform this, the same welfare index used by Minot and Goletti (1998) andMinot (2009) was applied as follows:

DPSr ¼DPs

PsPBRr þ

1

2

DPs

Ps

� �2

PBRrccc0r

" #Yr ð13Þ

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DCSr ¼ � DPd

PdCBRr þ

1

2

DPd

Pd

� �CBRre

Dcc0r

� �Yr ð14Þ

Xr

Dxr ¼Xr

DPSr þ DCSr½ � þ DGS ð15Þ

where DPSr and DCSr refer to change in producer and consumer surplus;PBRr and CBRr are production and consumption benefit ratio; eDcc0r is Marsha-lian elasticity of demand function; and Dxr and DGS correspond to change insocial welfare and government surplus (tariff revenue), respectively.

RESULTS

This section presents the simulated results of the model for various levels ofimport tariff (i.e., in the range of 4–90%). Also, more detailed results of theself-sufficiency scenario through increasing rice import tariff from 4% inthe base year (2008) to 45% in 2010 are demonstrated. Results imply ceterisparibus condition, which means that all parameters except import tariff areheld constant.

At first glance, the effects of 20, 23, 50, 75, and 90% of import tariff sce-narios were simulated and shown in Table 1. Results demonstrate that riceimport and consumption in the nationwide as well as regional markets woulddecrease continuously by increasing the level of import tariffs; however, riceproduction would not rise more than 2103.2 thousands ton (tt) after increas-ing import tariffs above 23%.

These results are for two main reasons. First, as found by Mosavi andEsmaeili (2011b), the tariffication of nontariff barriers (e.g., in the form oflicenses and embargoes) was equal to 62% in the base year (2008). It showsthat the Iranian rice market is highly protected with nontariff measures,which caused the real rice import tariff to be equal to 66% at the base year.Therefore, the effect of nontariff measures offsets the efficiency of raising theimport tariffs. Second, continuous increment of rice production associatedwith import tariff is inconsistent with resource structure of Iran. Because riceis a water-intensive crop, its production is subject to availability of areas withplentiful supplies of surface or groundwater. These kinds of areas are themost limiting factor for expanding rice production in Iran. Hence, it isexpected to confine the effectiveness of tariff policies especially assumingfixed yield per area.

To provide a more detailed picture of the problem, Table 2. presents theimpacts of increasing rice import tariff from 4% in the base year to 45% in2010 in the countrywide and regional rice market characteristics. This tableis designed in two sections. The first section offers the results of IRSPEM after

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TABLE 1 Results for Base Case and Different Import Tariff Scenarios

Regions Baseline 20% 23% 50% 75% 90%

Import Countrywide 1380.0 678.6 591.1 488.4 418.4 384.3Region 1 342.7 159.3 98.9 82.2 71.0 65.6Region 2 219.5 102.0 99.8 83.7 72.5 67.0Region 3 234.7 104.0 100.6 83.9 71.5 65.1Region 4 230.0 104.2 102.4 88.3 78.1 72.9Region 5 158.0 110.8 94.9 75.5 63.0 57.2Region 6 194.9 98.2 94.6 74.8 62.3 56.5

Production Countrywide 1659.8 2054.6 2103.2 2103.2 2103.2 2103.2Region 1 1385.6 1643.7 1674.3 1674.3 1674.3 1674.3Region 2 7.0 10.2 10.5 10.5 10.5 10.5Region 3 3.7 3.8 3.8 3.8 3.8 3.8Region 4 236.7 322.2 334.2 334.2 334.2 334.2Region 5 4.5 10.5 11.2 11.2 11.2 11.2Region 6 22.3 64.2 69.1 69.1 69.1 69.1

Consumption Countrywide 3039.8 2733.2 2694.4 2591.6 2521.6 2487.6Region 1 725.0 699.1 695.9 679.3 668.1 662.7Region 2 479.1 417.9 410.4 394.2 383.0 377.5Region 3 549.0 484.0 476.1 459.4 447.0 440.6Region 4 466.7 418.5 411.8 397.7 387.5 382.3Region 5 372.5 325.1 318.9 299.5 287.0 281.2Region 6 447.6 388.6 381.3 361.6 349.1 343.2

Source: Simulation of Iranian Rice Spatial Price Equilibrium Model (IRSPEM).

TABLE 2 Effect of Increasing Rice Import Tariff From 4% to 45% on Regional Rice Markets

RegionsRetail price

(US$a)Production(1,000 ton)

Consumption(1,000 ton)

Import(1,000 ton)

Interregionaltrade

balance(1,000 ton)

Countrywide 2886 2103 2608 504.9 –Region 1 2661 1674.3 682 84.9 1077.3Region 2 2847 10.5 397 86.3 �300Region 3 3404 3.8 462 86.7 �371.4Region 4 3026 334.2 400 90.6 24.8Region 5 2648 11.2 302.5 78.5 �212.8Region 6 2492 69.1 364.6 77.9 �217.6

Percentage change from baselineCountrywide 20.7 26.7 �14.2 �63.4Region 1 21.8 20.84 �5.5 �81 8.2Region 2 20.1 50.54 �17.2 �56.4 9.5Region 3 16.2 2 �15.8 �63 19.7Region 4 17.8 41.2 �14.3 �60.6 24.2Region 5 22 153 �18.8 �31.7 �15.9Region 6 23.6 209 �18.5 �48.5 �20.6

Source: Simulation using Iranian Rice Spatial Price Equilibrium Model (IRSPEM).aOne US$ equals 10,000 Rials (Iranian local currency).

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implementing the scenario. The second part shows the percentage change ofrice market characteristics from baseline.

As shown in Table 2, the model indicates that increasing rice importtariff would raise the average retail price and production of rice about20.7% and 26.7%, respectively, countrywide. It means that after increasingimport tariff, retail price increases about 0.495 US$ and rice production growsabout 443.4tt. As expected, rice consumption and import are adversely affec-ted by increasing import tariff. Rice consumption decreases about 14.2%(431.7tt) amounting to 2608tt. Also imported rice falls about 63.4% anddecreases from 1380tt in the baseline to 504.9tt after performing tariff policy.However, the effects vary by regions. A high price increase occurs in Region1 and Region 2 as the two northern regions from 20.1% to 21.8%. Also,central regions (Regions 3 and 4) experience the lowest price increase, inthe range of 16.2–17.8%.

In contrast, two eastern regions (Regions 5 and 6) are accompanied byhigher price increase about 22–23.6%. Region 1 is associated with higher pro-duction and consumption as well; however, production not only is largeenough to cover regional consumption but also secures about 1077.3tt forexporting to other regions. Because rice consumption was initially higherin Region 1, a given absolute decrease in rice consumption is accompaniedby a smaller percentage change (5.5%). Also, results show that only Region 1is a net exporter region in the baseline and its export to other regionsincreases about 8.2% as import tariff increases. Region 4 has net marketableexcess supply about 24.8tt. This region was self-sufficient in the baseline.Increasing import tariff led to production rise in Region 4, about 42%, andalters this region as an autarkic to a net exporter one. Other regions arenet importer before and after increasing import tariff; however, interregionalimport to Regions 2 and 3 increases (9.5% and 19.7%, respectively) and toRegions 5 and 6 decreases. In addition, results reveal that the share of allregions from imported rice would decline, especially in Region 1, which isfar from world market and has a potential to secure regional consumption.As discussed earlier, Regions 5 and 6 are far from Region 1 and are closerto world market, so increasing average domestic rice price by 22–23.6%results in substitution of cheaper imported rice with domestic counterpart.Therefore, these two regions experience the lowest import decrease in com-parison with other regions. In line with the country, other regions are facedwith the modest reduction of imported rice in the range of 56.4–63%.

One of the main important variables in the model is excess supply(EScr), which shows the efficiency of floor price policy as the second govern-ment policy to increase rice production. Simulated results show that thevalues of this variable in the countrywide and in all regional markets areequal to zero; therefore this variable is not reported. This fact implies thatthe floor price policy was ineffective to increase rice production, which isundoubtedly due to adoption of low price floor level in the rice market.

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The regional differences in the market characteristics, which becameapparent in Table 2, led to a distinctive variation in social gains amongregions. Table 3 exhibits welfare change of self-sufficiency scenario basedon Equations (13)–(15). As shown, as result of increasing rice import tarifffrom 4% to 45%, the consumer surplus decreases about 976.8 million US$and producer surplus increases about 589.7 million US$. Also, governmentobtains 229.6 million US$ from tariff policy. As can be seen, rice producersand government would be better off at the expense of consumers; however,the sum of producer and government surpluses is still much lower than con-sumer loss, which brings loss in total social welfare about 157.5 million US$.

As revealed in Table 2, the absolute amount of consumption decreaseand production increase happened in Region 1 and so it is clear that consumersurplus decrement (236.7 million US$) and producer surplus increment (479.5million US$) are much greater than those in the other regions. The producergain, which is 2 times higher than consumer loss, brings about the net socialwelfare gain (242.8 million US$) in this region. The social welfare of Region 4is negative (59.7 million US$) because the consumer loss exceeds theproducer gain, even though this region was identified as a net exporter afterimplementing tariff policy. All other regions would experience only minorproducer surplus increase (between 1.1 and 20.5 million US$) whereasconsumer surplus would sharply decrease (between 121.5 and 184.8 millionUS$). This fact incurs social welfare loss in these regions.

Including income as an exogenous factor in IRSPEM enables us to ana-lyze the impacts of the self-sufficiency scenario on the real and per capitaincome. Table 4 presents the income effect of raising rice import tariff inthe nationwide and in regions. Increase in production by 26.7% (Table 2)caused 0.59% growth in total nominal income. Also, increase in retail priceby 20.7% (Table 2) not only decreased consumption but also increasedCPI by 1.41%. Increasing CPI in turn would decrease real income and percapita income (0.44% and 0.41%, respectively) throughout the nation.Increasing rice import tariff promotes nominal income and CPI while itreduces real income in the regional scale. However, by performing this

TABLE 3 Welfare Change of Increasing Rice Import Tariff From 4% to 45% (Million US$)

Regions Consumer surplus Producer surplus Government surplus Social welfare

Countrywide �976.8 589.7 229.6 �157.5Region 1 �236.7 479.5 — 242.8Region 2 �152 3.1 — �148.9Region 3 �184.8 1.1 — �183.7Region 4 �141.8 82.1 — �59.7Region 5 �121.5 3.3 — �118.2Region 6 �140 20.5 — �119.5

Source: Calculated using Equations (13)–(15) and simulation of IRSPEM.

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policy real and per capita income would rise just in Region 1. In line with thesocial welfare indexes, which are mentioned in Table 3, other regions’ con-ditions would deteriorate by diminishing real and per capita income.

DISCUSSION AND REMARKS

The Iranian government manipulates the tariff levels for the sake of support-ing domestic rice production and achieving self-sufficiency. However, theconsequences of these manipulations are disputable and continue to bethe most important issue for the researchers and decision makers. Also exist-ence of spatial markets accentuates the complexity of this problem becausethe effects are dampened as one moves away from exporting (importing)region. Hence, this study tried to provide an analytical perspective for col-lecting useful information that helps policymakers to make better decisionsabout rice trade and self-sufficiency using a multimarket SPEM. Results dem-onstrate that even though rice producers benefit, Iran incurs overall welfareloss (157.5 Million US$) as consumer surplus loss is much higher than pro-ducer surplus gain plus tariff revenues. Similar results are found in relationto real and per capita income. Nevertheless, Region 1 as the largest net exporterregion reaps the largest gain. All other regions including Region 4, which isspecified as a self-sufficient region, identified as deficit ones and would be wor-sened. These results underscore the adverse effects of trade restrictions and theimportance of adopting free trade policies in the rice market.

The results also confirm that the impacts of increasing import tariff areinsensitive to alternative rice demand parameters because prices are largely

TABLE 4 Income Effect of Raising Rice Import Tariff From 4% to 45%

RegionsTotal nominal income

(Million US$) Consumer Price IndexReal income(Million US$)

Per capitaincome (US$)

Countrywide 98881.5 101.65 97276.4 1277.5Region 1 15483.3 101.88 15197.6 1405.8Region 2 14649.4 101.68 14407.4 1258.2Region 3 26203.6 102.14 25654.6 1273.8Region 4 18273.1 102.02 17911.3 1269.1Region 5 11626.0 100.97 11514.3 1225.7Region 6 12646.2 101.21 12495.0 1232.3

Percentage change from baselineCountrywide 0.59 1.41 �0.44 �0.41Region 1 3.40 1.60 1.99 2.49Region 2 0.01 1.49 �1.11 �1.24Region 3 0.001 1.44 �0.79 �1.17Region 4 0.27 1.25 �1.08 �0.63Region 5 0.03 1.30 �1.08 �1.12Region 6 0.17 1.38 �1.02 �1.03

Source: Simulation of Iranian Rice Spatial Price Equilibrium Model (IRSPEM).

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determined by production costs, the world price, and internal distributioncost such as transport and transaction costs. The same results were previouslyfound by Minot and Goletti (1998) in the case of rice polices in Vietnam.

In addition, high level of nontariff measures associated with agriculturalresource structure lead to inefficient self-sufficiency policies. It is observedthat rice production would not increase ceaselessly by increasing import tarifflevels. Moreover, floor price policy as an alternative policy to induce pro-duction was incompetent. These findings emphasize that import restrictionwould not guarantee the goal of self-sufficiency and therefore it seems thatadopting policies that improve rice yield per unit of area are the sensibleoption in rice market.

Finally, some remarks on the wider implications of these results may beoffered. First, pursuing self-sufficiency policy in the production of rice as awater-intensive commodity would raise problems posed by recent droughts.In general, this kind of policy improved inefficiency in the use of water inrural areas. Second, further research efforts should be directed toward iden-tifying resource endowment, tariff exemption, and farm productivity, whichwere ignored in this study but are undoubtedly important determinants ofmarket outcomes under trade liberalization and self-sufficiency policies.

NOTES

1. Viet Nam Livestock Spatial Equilibrium Model (VILASEM).

2. The GAMS codes are in request to assist the referees with the review process.

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CONTRIBUTORS

Seyed Hbibollah Mosavi is a PhD candidate in the Department ofAgricultural Economics, Shiraz University, Shiraz, Iran.

Abdoulkarim Esmaeili is an associate professor in the Department ofAgricultural Economics, Shiraz University.

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